Something seems wrong with the American economy, despite strong headline numbers. Nine years into the expansion, GDP and productivity growth remain below their long-term trends. According to a working paper published by the National Bureau of Economic Research, restrictive land-use regulations in California and New York are a major reason why. The paper, by Kyle F. Herkenhoff, Lee E. Ohanian, and Edward C. Prescott, argues that “these restrictions have depressed macroeconomic activity since 2000.” The basic idea is that land-use regulations artificially constrain the supply of land, driving up prices for housing and commercial rent — and that these regulations are the most restrictive in places where productive opportunities are plentiful. Take the Golden and Empire States, where, compared with the rest of the country, jobs abound and productivity is high.
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